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ORAL SESSION 1 (Part 1)
ALL-PARTY PARLIAMENTARY FOOTBALL GROUP
Proceedings at the First Examination of Witnesses on
Tuesday 12 June 2003
Present:
Adrian Bailey MP
Clive Betts MP
Lord Carter
Lord Faulkner of Worcester
Mark Field MP
Alan Keen MP (Chair)
Peter Pike MP
Christine Russell MP
Examination of Witnesses
David Conn, The Independent; Mihir Bose, The Daily Telegraph; Dr Rory Miller, Liverpool University Football Industry Group; Professor Tom Cannon, Kingston Business School; Matthew Dunham, Partner, RSM Robson Rhodes.
Chair
1. Welcome everybody and thank you all very much for attending – not just those giving evidence but all who are interested enough to take part. Our thanks also to the BBC for televising this hearing. House rules do not permit the use of rooms that already have television cameras installed but we will fight that battle shortly. The All-Party Football Group wanted to undertake an inquiry mainly because although Select Committees have more power – I am a member of the Culture, Media and Sport Select Committee – much of that power is based on influence over Government and other bodies. But in the end, the Government have the real power in the form of enacting legislation. Whenever Sky appears before the CMS Select Committee, we praise the company for its wonderful televising of football but I am fond of reminding Sky that it is not Sky that puts money into football but the subscribers to satellite and cable channels and supporters who buy tickets and club merchandise. Supporters deserve a fair deal and there is growing concern about the financial disparity between the rich and poor clubs. Many have gone into administration. For those who do not know, we have to thank also our final witness at this hearing, who kindly stood in at short notice when the Independent Football Commission dropped out at the last minute. The financial problems are made worse by one or two other factors. We fear that Mario Monti, the European Commissioner for competition, may insist the Premier League is not allowed to negotiate the whole of football with whichever company ends up providing the facility. That could mean that the bigger clubs would get even more money, creating a greater disparity in the Premier League. We have made it clear to people that we are not here to tell the football authorities how to run football. We are here to gather as much evidence as we can and present it in a wide report, in the hope that the football authorities and the Government will listen and take a broad, long-term view – rather than the short-term view a Plc company might take. Our hearings will be based on the Select Committee model but it is important to understand that we do not have the same privileges – so any comments may be treated in the same way as if they had been made outside Parliament. The group has 17 members, who will all contribute to our final report. We have excluded from the production of the final report members of the APFG who have a special interest because they are directors of football clubs. They will not play a part in putting the final report together. We shall be careful to make sure that the report is completely independent.
Mark Field MP
2. Mr Bose submitted an excellent paper but I may be the only member of today’s panel who religiously reads The Daily Telegraph. Particularly interesting was the way that you, Mr. Bose, analysed and drew a distinction between the European and US models. Obviously interesting economic consequences flow from that. Do you have any thoughts on the current fundamental financial issue in the British soccer industry? Is it the unfair distribution of money within the game, which raises the hackles of many supporters, or is it the lack of transparency in where the money goes?
(Mihir Bose) The distribution is unfair but we must ask ourselves why. Unfair distribution takes place because, as often happens in this country, nobody has really examined how football is organised. The structure legalistically is basically a 19th century joint stock company. Until 1983, there was no question of a football company having a listing on the stock market. Tottenham Hotspur, to get out of its West Stand debts, had the novel idea of floating on the stock market. It could not float the football club, so it floated the holding company and made the football club a subsidiary because the Football Association imposed restrictions on paying dividends. As a result, from that and various other developments came the advent of companies paying real sums of money for televising the game. We are witnessing today great publicity about the possible sale of David Beckham. If he is sold, as is likely, that will trigger the transfer market in this country. At this point in time, apart from Manchester United and with the possible exception of Liverpool, no other football clubs in the Premier League – including Arsenal, which finished second – have any money to spend. Manchester United will spend some of that money in the transfer market, which will trickle down to the other clubs. That cannot be a good situation. The Premier League was formed from the idea of the NFL. I drew a comparison between the American and the European model because basically the latter is an amateur body that runs everything – even the professional game. The amateur body’s ethos is entirely different. At the heart of the NFL is a very collectivist philosophy. It centralises all marketing and television rights, which it distributes in a certain fashion. There are legislative constraints on American baseball and basketball. The amateur game also has its own laws. The Amateur Games Act 1978 requires that 10% of all deals done by US television networks must go to the amateur game. Those legislative concerns have never been brought into this country. As a result, we have a mishmash of regulation. The situation has been allowed to develop whereby a couple of clubs can become very big, sell their rights and keep most of the money. The Premier League hogs most of the money. The transparency problem is important. The figures talked about are mostly rubbish. Sky did not pay £304 million in 1992, it paid £191 million. The current FA deal with Sky is not £400 million, it is £345 million. If wrong figures are given, there is no proper basis for debate.
3. Why are the wrong figures given?
A. Because there is no requirement at this point in time for a football authority to release, for example, a transfer figure. Rio Ferdinand was not sold to Manchester United for £30 million, he was sold for £26 million. Manchester United will pay the remaining £4 million if it wins the Champions League for the next three years and all sorts of other factors. All kinds of commercial deals are made. You as legislators have not put forward any requirement that when a transfer takes place, the details should be disclosed. In America, the amount paid, the way it is paid and the player’s wages are all disclosed. So here, the fan thinks, “Leeds United has £30 million. How come they suddenly have a debt of £78 million?”
4. Other than leading to inflation – or on that basis, deflation – within the transfer market, how does that damage the game? I appreciate the concerns about lack of transparency among millions of avid football supporters but how does it harm the game?
A. Because it becomes the model. Every football club thinks that it can become a Manchester United and float on the stock market. That is not a model for Rochdale or Mansfield. The model must be right for the structure of the club. If one takes as the successful model the football club that floats on the stock market, has a board and is a Plc – which is the only model going – one creates a very false situation.
5. As recently as the early 1980s, Nottingham Forest – which won the European Cup in 1979 – was not even a limited company. It was a club. There was no suggestion at that juncture, 25 years ago, that all clubs should follow that successful model.
A. But at that stage there was not a great deal of money in football. The money in football only came in 1992 – the crucial year when the Premier League was formed and significant sums of money were paid by television. It was also the year in which the Champions League was devised, which effectively created a midweek European league. The old structure was fine as long as there was a maximum wage, which equalised all clubs. Stanley Matthews was paid £10 a week. Docherty is supposed to have told Nat Lofthouse that he was not as good and the reply was, “I am as good as him in the summer.” There was, if you like, a trade restriction that, until the judges decided it was illegal, worked. America has a collectivist philosophy enshrined in law and it works. It is a totally different system and I am not saying that you should import it. It is not a matter of asking, “Why isn’t football distributing more money.” At the end of the day, it amounts to saying, “Give us more handouts.” That is almost a Victorian concept and I would have thought not even the Tory Party believe in self-help. All the public posturing amounts to saying, “Why are they so rich?” They are because they are allowed to become so rich.
6. If one returns to the ending of the maximum wage more than 40 years ago, the self-same clubs are still there. Arsenal was an old First Division club since the first world war. Everton, likewise, has been in the top league since after the second world war. Clubs such as Liverpool and Tottenham Hotspur have not been outside the top group for 40 years.
A. You are only looking at the finances.
7. But in terms of equality and collectivism, the self same clubs are there.
A. In 1992, Manchester United’s income was less than that of Tottenham Hotspur. In fact, it did not exceed Tottenham Hotspur’s income until 1995. At the same time, a lot of Government money was given for rebuilding stadiums as a result of the Hillsborough tragedy. Nobody looked at why public money should go to rebuilding stadiums. Manchester United had already built its 67,500-seater stadium. This year, Arsenal is struggling to buy players because it has still to move to a new stadium. There has been a mishmash of policies and no clear thinking. That is the sum and substance of what I am trying to say. It is no use saying there should be better distribution. How could one enforce it? At the end of the day, it is just a plea for more money and greater generosity.
Lord Faulkner of Worcester
8. Would I be right in assuming that the trend within football over the past 20 years has been to concentrate more and more wealth in the hands of fewer and fewer clubs? Has not every structural change accentuated that process?
(David Conn) Absolutely. That is the main tendency. It is true that 1992 was the crucial year but it was happening before that. There was pressure from the old First Division led by what were then called the Big 5 – Arsenal, Manchester United, Liverpool, Everton and Tottenham – to keep more of the money. Mihir is saying it is all handouts but for more than 100 years the system was to share the money more or less equally among clubs, even down to an individual match. The clubs would share the gate receipt. Even if the game was at Old Trafford, the smaller club with a 50,000 gate would still split the money with Manchester United. One could argue that there is a balance to be struck. One could understand the bigger clubs that had huge grounds and were running their clubs well questioning why they should give the visiting side exactly half. The APFG is the latest body to take a look at football but everybody reaches the same conclusion. Everything has evolved. No one involved in football ever seems to have had the time, even in 130 years, to consider what is best for football as a whole. The Football Association was formed in 1863 just to play the game but from then on has more or less hurtled forward. Money was shared more or less equally since the FA’s formation. The money from the first TV deal in 1965, which was for just £5,000 from the BBC for Match of the Day was shared absolutely equally between all 92 clubs – so Doncaster Rovers got £50 and Manchester United got £50. As the deals reached billions, the big clubs wanted more of the money. The Premier League is the old First Division that broke away from the Football League to form its own, specifically and solely to keep all the money that was about to come in from the 1992 satellite TV deal. The current deal is worth billions with all the spin-offs. There were warnings. At the same time, there has been a renaissance in football. I agree that public money was given to clubs just when they were enjoying a huge commercial bonanza and one can question whether they deserved it and whether repayable loans should have been made instead. Until quite recently, not enough questions were asked about the way the structure had changed. To give you an idea of the disparity that exists now, Manchester United has made around £51 million just from television this year – from Sky, the Premier League, all the other Premier League rights and the Champions League. I believe that I am right in saying that the Football League’s current deal with Sky for all clubs in the league, in the wake of ITV Digital, is worth £26 million. So Manchester United alone is making twice as much from TV as all 72 clubs in the Football League. You referred to Nottingham Forest. Brian Clough did the same with Derby. That club came from low down in the Second Division. He crafted a team from a hotpotch of players and went on to win the European Cup. Now we are seeing almost a total concentration of footballing success in Manchester United and Arsenal. It is all self-perpetuating. If a club wins the Premier League, it gets more money. If a club gets into the Champions League, it gets vastly more money. Year after year, that is cementing the power of certain clubs. There are three reasons for seeking more redistribution. First, and most fundamentally, that is how football was always organised until 1992, when the clubs broke away. They should never have been allowed to break away. The FA backed that move when it should never have done so. Secondly, things are getting boring. Manchester United has much more money so nobody expects it to be challenged on the field. Thirdly, while huge money is available to players, managers, agents and other individuals at the top layer, old-established clubs in towns and cities that have loyal support are going bust or into administration.
Peter Pike MP
9. You lightly touched on the second reason for the breakaway being that the Football Association in some ways saw it as part of its ongoing battle with the Football League over many years. The FA believed the breakaway would give it more power. In the end, the Premier League has become more powerful than the FA. Do you agree? Your recent articles have referred to the number of clubs that have gone into administration – and that number has increased in the past week or so. But it must also be recognised that many clubs have worked very hard to avoid going into administration. Burnley, of which I have been a lifelong supporter, could easily have gone into administration if it had chosen to do so but did not believe that was the right course of action. How many clubs are trying to ensure that they honour their contracts and other legal obligations, sometimes deferring some of the payments to which they are committed, to avoid going into administration?
(David Conn) Avoiding going into administration is a complicated issue. There has been a lot of resentment among clubs that have tried to cut their cloth towards those that have gone into administration. What has been happening is scandalous. Some clubs have gone into administration. The average football fan struggles to understand the meaning of that process. People think that the club will reorganise and come out of it leaner and meaner. In Leicester’s case, it got promoted, will get the big money next season and hope that it does not happen again. In fact, the advantage for clubs of going into administration is that they can leave people unpaid. Football creditors – players’ wages mainly – get paid. I have written about various scandals that have affected some lower division clubs.
(Mihir Bose) Under the trade rules of the Football League and the FA, clubs have to pay their football debts in full but not their other debts. A club can go into administration, as Wimbledon is doing, and sack all non-playing staff. The playing staff – some of whom are very well paid, some not – are protected. One can understand the historic reasons but given that there has been a huge wages inflation for players, clearly that is a very unequal situation. In any other industry, it could not be justified.
10. Burnley and its fans understandably felt very aggrieved when Ipswich came out of administration and the day after took on a player for whom Burnley had been negotiating.
(David Conn) Mihir made the point about non-playing staff who have been sacked. No one is keeping a careful tally but I understand that Leicester sacked 26 people. One heard stories about the assistant kit washer, who was paid about £8,000 a year, suddenly being sacked. Bradford closed two shops and sacked about 56 staff.
(Mihir Bose) Wimbledon has already sacked about 11 staff already, out of 40.
(David Conn) Sunderland said that its redundancy programme will involve up to 83 people. More than 80 everyday jobs in Wearside will not be easy to come by. The club will not save Tore Andre Flo’s salary by sacking 83 people. There is a huge imbalance there. It is not only staff but also creditors. One feels that as a journalist. I might have been working on the club’s Web site or writing a book for the club. It is not a director who takes responsibility, saying “I have taken the club into insolvency. It is my responsibility. I will resign.” The directors stay and keep their salaries too. Taking a club into administration and leaving behind that sort of mayhem at a time of commercial boon, with the money staying at the top and mostly going into incredible salaries for a few individuals, is the structure now. The FA is supposed to be the independent governing body. I have reached the conclusion that while it is all very well saying that the FA should be tougher, it is answerable to the clubs. The FA almost organises the game for them but increasingly one questions whether it is in any position to regulate. The FA is failing in key ways. The APFG could address what is supposed to be the overall governing body.
Clive Betts MP
11. The problem is clear – mal-distribution. It is not just minor mal-distribution but deep grained. It is like a cliff edge. A club can fall off if it does not get in the Champions League, Uefa Cup or Premiership. Clubs overstretch themselves trying to stay in the Premiership or get into the Champions League. Once they fall, they risk a bigger fall. The parachute is not sufficient to cushion them. What is the solution? Should the Premiership give more money to First Division clubs? Probably not. Would the Premier League clubs agree to a smoother distribution of funds within the Premiership? There may be more of a chance of that happening. How would you deal with Manchester United’s position? It would argue that it cannot compete with Real Madrid and AC Milan unless it has an enormous income from gate receipts, merchandise sales and sponsorship deals. Secondly, if going into administration is being used as a tool – although Leicester has used it in a different way from anybody else – should points be deducted from the clubs in question as a penalty?
(David Conn) I think the Football League is going to do that. To give the League credit, it has addressed some of the problems, which the Premier League has not really done. It has its head in the sand in many ways. The biggest cliff edge is getting relegated from the Premier League. Last year, Leicester and Ipswich went down and went into administration, leaving massive unpaid debts. Derby tried not to go into administration but restructured and made deals with creditors. A club can go from making £26 million from television to making £500,000. The Football League is looking at the problem. It is suggesting a maximum amount of a club’s income that can safely be spent on wages. That is sensible. It is also suggesting a points penalty for going into administration. I have argued for a fit and proper person test for people who become directors or major shareholders. That is not whistling in the wind anymore because the authorities agree. But while the FA keeps saying that it will introduce such a system, it seems to be lost in the long grass. If anybody who had been involved in running a company into insolvency could not be made a director or major shareholder, the individuals who have taken clubs into administration would be excluded. That would scare them. Being excluded from their club boardroom would scare them more than the deduction of a few points.
(Mihir Bose) What is happening in football happened at Lloyds some years ago. Lloyds had a tradition of self-regulation, which is a highly honoured, great British tradition. Lloyds was supposed to know what it was doing. We all know now how well Lloyds knew what it was doing. We do not need to go into the history. Similarly in football there has been self-regulation. Parliament has been very reluctant to interfere. Even the sport Select Committee has been careful to say that it does not want to disturb anything. It is very reluctant to enter a field that is self-governing and self-regulatory. However, even a self-regulating body must operate within a set of laws. One must look at the way they affect self-regulatory body. Do they allow certain constituents of a self-regulating body to acquire positions of power and take advantage? If so, as legislators you have a duty to examine the overall legislative structure to see whether it needs amending. One reason for the awful problems of the 1970s and 1980s was that through the 1950s and 1960s when British football was booming, with gates of 50,000 or 60,000 and construction costs were cheap, club stands were not renovated because the tax advantages did not exist. Football was not run by people who thought about such things. Football is allowed to operate under a joint stock company system that has its own regulations, yet we do not regulate the essence of the game. The FA is allowed to do that. It is said that the FA allowed the formation of the Premier League. If the FA had not granted a licence, it could not have been formed. The FA is the licensing body of football. If the FA does not licence a club, it cannot operate. The FA made a complete hash of it. It thought that licensing the Premier League would give it more power. It still has a notional golden share in the Premier League and one FA representative attends its meeting but the FA has no effect on the way that the Premier League is run. The legislators have allowed self-regulation to continue without examining how it works.
(David Conn) The one piece of legislation introduced addressed stadium disasters. In his report, Lord Justice Taylor stated that matters had been left to the clubs for too long. There has been such a report after every disaster, every 10 or 15 years. Every time, the reports say “We trust that after all these deaths, the clubs will abide by our recommendations.” They never have. Lord Justice Taylor stated, “We cannot leave it to the clubs anymore. We must pass laws.” Football witnesses will no doubt tell you that the worst possible thing would be to pass legislation. The industry seems to be allergic to that idea.
12. Do you think that we made the wrong decision when we set up the Independent Football Commission and went for self-regulation rather than the other model?
A. At the time, I did not. I still thought that the FA could be booted into shape. But over the past couple of years, after various things have happened, I cannot see how the FA will achieve what is necessary. I think that the FA is being emasculated by the Premier League. Perhaps I may finish my point about the Taylor report. There is almost an instinctive desire for regulation to be left to football. After the Taylor report, the Government said, “We cannot leave regulation to the clubs any more. We will have to pass a law to make stadiums safe.” The clubs were given around £180 million of public money and I totally agree with Mihir that was a wrong decision and that loans should have made instead. Only two or three years later, football was boasting about its wonderful facilities, that Euro 96 was coming here and that Britain should bid for the World Cup. The clubs were boasting about reforms that only came about because they were forced on the clubs by the Government. I have the same feeling about the financial mess we see now. I can see recommendations being made and pressure finally being put on the Government for better financial regulation, fairer distribution of funds and protection for supporters in different financial ways. The clubs will argue, kick and spit. If a law were passed, it would knock a healthy, booming and incredibly popular national game into shape. Within two or three years, the clubs would be boasting about how well they were supporting the grass roots and fans. Passing such a law would be for the clubs’ own good.
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